Eurozone

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The eurozone (officially the euro area)^[1][2] is a currency union of 16 European Union (EU) states which have adopted the euro as their sole legal tender. It currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. Eight^[3] other states are obliged to adopt the zone once they fulfill the strict entry criteria.

Monetary policy of the zone is the responsibility of the European Central Bank, though there is no common representation, governance or fiscal policy for the currency union.

The term "eurozone" or "euro area" can also be taken informally to include third countries that have adopted the euro, for example Montenegro (see details on these countries below). Three European microstates – Monaco, San Marino and the Vatican – have concluded agreements with the European Union permitting them to use the euro as their official currency and mint coins,^[4] but they are neither formally part of the eurozone^[5][6] nor represented on the board of the European Central Bank.

Members

In 1998 eleven EU member-states had met the convergence criteria, and the eurozone came into existence with the official launch of the euro on 1 January 1999. Greece qualified in 2000 and was admitted on 1 January 2001. Physical coins and banknotes were introduced on 1 January 2002. Slovenia qualified in 2006 and was admitted on 1 January 2007. Cyprus and Malta qualified in 2007 and were admitted on 1 January 2008. Slovakia qualified in 2008 and joined on 1 January 2009. At the moment there are 16 member states with over 325 million people in the eurozone.

     EU Eurozone (16)      EU states obliged to join the Eurozone (9)      EU state with an opt-out on Eurozone participation (1 - U.K.)      EU state planning to hold a referendum on the euro (1 - Denmark)      Areas outside the EU using the euro with an agreement (5)      Areas outside the EU using the euro without an agreement (4)  v • d • e 

Venn diagram showing the relationships between various supranational European organisations.

	State	Adopted	Population	Exceptions
	Austria	01999-01-01 1 January 1999	&0000000008316487.0000008,316,487
	Belgium	01999-01-01 1 January 1999	&0000000010666866.00000010,666,866
	Cyprus	02008-01-01 1 January 2008	&0000000000766400.000000766,400	Northern Cyprus[7]
	Finland	01999-01-01 1 January 1999	&0000000005289128.0000005,289,128
	France	01999-01-01 1 January 1999	&0000000063392140.00000063,392,140	New Caledonia[8]  French Polynesia[8]  Wallis and Futuna[8]
	Germany	01999-01-01 1 January 1999	&0000000082314906.00000082,314,906
	Greece	02001-01-01 1 January 2001	&0000000011125179.00000011,125,179
	Ireland	01999-01-01 1 January 1999	&0000000004239848.0000004,239,848
	Italy	01999-01-01 1 January 1999	&0000000060017677.00000060,017,677	Campione d'Italia[9]
	Luxembourg	01999-01-01 1 January 1999	&0000000000476200.000000476,200
	Malta	02008-01-01 1 January 2008	&0000000000404962.000000404,962
	Netherlands	01999-01-01 1 January 1999	&0000000016471968.00000016,471,968	Aruba[10]  Netherlands Antilles[11]
	Portugal	01999-01-01 1 January 1999	&0000000010599095.00000010,599,095
	Slovakia	02009-01-01 1 January 2009	&0000000005389180.0000005,389,180
	Slovenia	02007-01-01 1 January 2007	&0000000002013597.0000002,013,597
	Spain	01999-01-01 1 January 1999	&0000000045116894.00000045,116,894
	eurozone		&0000000325714137.000000325,714,137

Enlargement

     eurozone countries      ERM II members      EU member with currency pegged to the euro (Bulgaria)      EU members with free-floating currencies      non-EU members not pegged to the euro      non-EU members using the euro      non-EU member with currency pegged to the euro (Bosnia and Herzegovina)

Eleven countries, Denmark, Sweden, the United Kingdom, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania are in the European Union but do not use the euro. Before a state can join the eurozone, it must spend two years in the European Exchange Rate Mechanism (ERM II). As of the 1 January 2008, five National Central Banks (NCBs) participated in the mechanism (see table below). The remaining currencies are expected to follow as soon as they meet the criteria.

Romania is seeking adoption in 2014.^[12] When Hungary adopted a program of financial convergence in 2006 to tackle its serious fiscal problems, there was no new target set for adopting the euro.^[13] Estonia had problems with inflation that prevented it adopting the euro in 2007; the estimated date is now 2011. Some recent analysis says that Bulgaria will not be able to join earlier than 2015, due to their inflation problems and the impact of the global financial crisis of 2008.^[14] The Bulgarian lev is pegged to the euro at a fixed rate of 1.95583 leva = 1 euro, having previously been pegged to the German mark.

On 10 September 2008, speaking at the launch of an economic forum in a Polish resort of Krynica-Zdrój, Polish Prime Minister Donald Tusk announced the ruling government's objective to join the eurozone in 2012, by holding a referendum in 2010 and being approved by the European Central Bank in 2011.^[15][16][17] However, since the Polish constitution will need to change first^[18] and they will have to join the ERM II before second quarter 2009,^[19] this target date is still very aggressive. On January 1, 2009, current Czech PM, Mirek Topolánek, declared that on November 1, 2009, the Czech government will announce a fixed date for euro adoption, since the Czech Republic "currently fulfills all criteria for adoption of the euro."^[20]

The 2008 financial crisis has increased interest in Denmark and Poland to join the eurozone, and in Iceland to join the European Union, a pre-condition for adopting the euro.^[21] On the other hand, since Latvia is asking for help from the International Monetary Fund (IMF), it is possible that the IMF will force Latvia to give up its currency peg as a precondition; officially taking Latvia out of the ERM II and possibly moving the euro adoption date even further from 2013 than currently planned.^[22]

Denmark and the United Kingdom obtained special opt-outs in the original Maastricht Treaty of the European Union. Both countries are legally exempt from joining the eurozone unless their governments decide otherwise, either by parliamentary vote or referendum. The current Danish government has announced plans to hold a referendum on the issue following the adoption of the Treaty of Lisbon.^[23][24][25] Sweden gained a de facto opt-out by exploiting a legal loophole. It does not work to meet the criteria to join, deliberately staying out of ERM II, and so is not able to adopt the currency as it is obliged to. This is because the Swedish public rejected the euro in a referendum. The Commission tolerates this, but has stated that it would not be lenient on any future members attempting this action.^{[citation needed]}

Non-member usage

The euro is used beyond the EU states which have joined the economic and monetary union. Three states, Monaco, San Marino and Vatican City,^[26][27] have signed formal agreements with the EU to use the euro, and to mint their own coins. However, although they have formally adopted the euro and mint coins, they are not considered part of the eurozone by the ECB and do not have a seat in the ECB or Euro Group.

Several other countries have officially adopted the euro as their sole currency, such as Andorra, Kosovo^[a] and Montenegro, without even an agreement. These states are also not considered part of the official eurozone by the ECB, however in some usage, the term eurozone is applied to all such states and territories that have adopted the euro as their sole currency.^[28] Further unilateral adoption of the euro (euroisation), by both non-euro EU and non-EU members, is opposed by the ECB and EU.^[29]

Administration

The monetary policy of all countries in the eurozone is managed by the European Central Bank (ECB) and the European System of Central Banks (ESCB) which comprises the ECB and the central banks of the EU states who have joined the zone. Countries outside the European Union, even those with monetary agreements such as Monaco, are not represented in these institutions. The ECB authorised the design and printing of euro banknotes and the minting of euro coins.

Representation and governance

Jean-Claude Juncker is the incumbent Euro Group president

The eurozone is represented politically by its finance ministers. The finance ministers of the EU member states that use the euro meet a day before a meeting of the Economic and Financial Affairs Council (Ecofin) of the Council of the European Union. The group, colloquially called the "Euro Group" (formerly Euro-X and then Euro-XI), was established at the request of France as a policy co-ordination and consultation forum on eurozone matters.^[30] Legally speaking, this group is not an official formation of the Council of the European Union. In September 2004, the Euro Group decided it should have a semi-permanent president that is to be appointed for a period of two years. Prime Minister and Finance Minister of Luxembourg Jean-Claude Juncker was appointed first president of the Euro Group, mandated from 1 January 2005, until 31 December 2006, and was re-appointed for a second term in September 2006.^[31]

On 15 April 2008 in Brussels, Juncker suggested that the eurozone should be represented at the International Monetary Fund as a bloc, rather than each member state separately: "It is absurd for those 15 countries not to agree to have a single representation at the IMF. It makes us look absolutely ridiculous. We are regarded as buffoons on the international scene."^[32] However Finance Commissioner Joaquin Almunia stated that before there is common representation, a common political agenda should be agreed.^[32] However, under the Treaty of Lisbon (currently stalled in ratification), the Euro Group would gain a legal basis and be given an official President (dubbed "Mr. Euro"):^[30] Protocol 14 lays out just two articles to govern the group;

Article 1: The Ministers of the Member States whose currency is the euro shall meet informally. Such meetings shall take place, when necessary, to discuss questions related to the specific responsibilities they share with regard to the single currency. The Commission shall take part in the meetings. The European Central Bank shall be invited to take part in such meetings, which shall be prepared by the representatives of the Ministers with responsibility for finance of the Member States whose currency is the euro and of the Commission.
Article 2: The Ministers of the Member States whose currency is the euro shall elect a president for two and a half years, by a majority of those Member States.

—Protocol 14 of the Consolidated Treaties of the European Union (as amended by the Treaty of Lisbon)^[33]

Furthermore, the treaty amends the Council of the EU's rules so that when the full EcoFin council votes on matters only affecting the eurozone, only those states using the euro (the Euro Group countries) are permitted to vote on it.^[34]

In 2008, in light of the 2008 financial crisis, French President Nicolas Sarkozy (speaking at the European Parliament as the outgoing President of the European Council) called the Euro Group to be replaced by a "clearly identified economic government" for the eurozone, stating it was not possible for the eurozone to continue without it. The eurozone economic government would discuss issues with the European Central Bank, which would remain independent.^[35] This government would come in the form of a regular meeting of the eurozone heads of state and government (similar to the European Council) rather than simply the finance ministers which happens with the current Euro Group. Sarkozy stated that "only heads of state and government have the necessary democratic legitimacy" for the role. This idea was based on the meeting of eurozone leaders in 2008 who met to agree a co-ordinated eurozone response to the banking crisis.^[36] This is in contrast to an early proposal from former Belgian Prime Minister Guy Verhofstadt who saw the European Commission taking a leading role in a new economic government, something that would be opposed by the less integrationist states.^[30] Germany subsequently rejected Sarkozy's idea, as he had proposed economic policies to respond to the economic crisis that would be mainly paid for by German funds.^[36] It is also opposed by current Euro Group chair Jean-Claude Juncker who does not think Europe is ripe for such a large step.^[30]

Economy

Comparison of eurozone with other economies, all figures from 2006.^{[37][dead link]}

(*) Excluding intra-EU trade.

Inflation

HICP figures from the ECB;^[38]

Interest rates

Interest rates for the eurozone, set by the ECB since 1999. Levels are in percentages per annum. Prior to June 2000, the main refinancing operations were fixed rate tenders. This was replaced by variable rate tenders, the figures indicated in the table after that refer to the minimum interest rate at which counterparties may place their bids.^[39]

eurozone interest rates

Fiscal policies

The primary means for fiscal coordination within the EU lies in the Broad Economic Policy Guidelines which are written for every member state, but with particular reference to the 16 current members of the eurozone. These guidelines are not binding, but are intended to represent policy coordination among the EU member states, so as to take into account the linked structures of their economies.

For their mutual assurance and stability of the currency, members of the eurozone have to respect the Stability and Growth Pact, which sets agreed limits on deficits and national debt, with associated sanctions for deviation. The Pact originally set a limit of 3% of GDP for the yearly deficit of all eurozone member states; with fines for any state which exceeded this amount. In 2005, Portugal, Germany, and France had all exceeded this amount, but the Council of Ministers had not voted to fine those states. Subsequently, reforms were adopted to provide more flexibility and ensure that the deficit criteria took into account the economic conditions of the member states, and additional factors.

The Organization for Economic Cooperation and Development downgraded its economic forecasts on 20 March 2008 for the eurozone for the first half of 2008. Europe does not have room to ease fiscal or monetary policy, the 30-nation group warned. For the euro zone, the OECD now forecasts first-quarter GDP growth of just 0.5%, with no improvement in the second quarter, which is expected to show just a 0.4% gain.

World financial crisis

This section may need to be rewritten entirely to comply with Wikipedia's quality standards. You can help. The discussion page may contain suggestions. (May 2009)

The Euro Group heads of state and government held a financial crisis summit in Paris on 11 October 2008 to define a joint action plan for the eurozone and the European Central Bank to end the turmoil of the global financial crisis.

European Union leaders hammered out a plan to confront the financial crisis which will involve hundreds of billions of euros of new initiatives to head off a feared "meltdown".^{[citation needed]} They agreed a bank rescue plan: governments would buy into banks to boost their finances and guarantee interbank lending. Coordination against the crisis is considered vital to prevent the actions of one country harming another and exacerbating the bank solvency and credit shortage problems. In the Great Depression, so-called "beggar-thy-neighbour" measures taken unilaterally by countries are considered to have deepened the economic loss.^[41]

The eurozone entered its first official recession in the third quarter of 2008, official figures confirmed in January 2009.^[42]

See also

European Union portal

• Economy of the European Union
• European Central Bank
• Economic and Monetary Union of the European Union
• Special member state territories and the European Union

Notes and references

External links

• European Central Bank
• eurozone Watch
• Calculate inflation in Euro Area MUICP 16 country
• Calculate inflation in AREA Euro

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